Wall St woes continue as Paulson targets consumers

Any honeymoon on Wall Street for president-elect Barack Obama has evaporated this week as stocks have slumped for the third day since a short-lived rally last week.

Investors have signalled they expect the economy to worsen. It also means President Obama will inherit the worst US recession in three decades, according to economists surveyed by Bloomberg News, as nearly a trillion dollars in credit losses drag on global growth.

Today’s further fall in US stock indices have followed bleak announcements from big retailers and changes in the Treasury Department's bailout plans that now will target consumer debt, such as car loans, student loans and credit cards.

Consumer spending drives more than two-thirds of the overall US economy and Treasurer Henry Paulson’s comments indicate spending will continue its sharp slide in the months ahead. 

The Dow Jones Industrial Average is down 214 points, or 2.5%, at 8479.47, hurt by declines in 29 of its 30 components.

General Motors, which had already lost more than a third of its market value in the first two days of trading this week, is the only gainer, rebounding 8% amid rising expectations that it will be included in the $US700 billion economic-rescue package.

The S&P 500's decline every day this week pared its rebound from a five-year low on October 27 to 3%. The broadly-based stock benchmark is down 44% from its October 2007 record.

Mr Paulson announced his agency was ready to enter the second phase of its bailout plan. But that is now unlikely to include his original proposal to buy up troubled assets from the balance sheets of banks.

Instead, the Treasury will target consumer debt and look at possible ways to use bailout funds to encourage private investors to return to the markets.

"Although the financial system has stabilised, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant US and world economic conditions," he told a media conference.

In other overnight events:

• European sharemarkets fell further. In the UK, the main FTSE 100 index ended down 65 points or 1.55% to 4182 after the Bank of England said the recession will continue well into 2009. The French Cac 40 index lost 102.45 points, or 3.07%, to 3,233.96 and Germany’s Dax index fell 140.78 points, or 2.96%, to 4,620.80.

• In currency markets, the USdollar weakened against the euro ($US1.2533, down from $1.2528) and the yen (95.59, down from 97.89). Money market interest rates for two-year notes gained 4/32 to yield 1.217% and the benchmark 10-year note was up 18/32 to yield 3.692%.

• Oil prices have fallen to their lowest levels since the beginning of 2007. US light sweet crude fell $US2.60 to $US56.73 a barrel in New York before rebounding to $US56.92. Brent crude dropped $US2.27 to $53.44.

• Goldman Sachs says it will consider mergers to make it a more diversified financial company, but only if the deals keep Goldman's focus and culture intact, Its shares slipped again, down 7%.

• American Express shares were down 8% after the Wall Street Journal reported the company was seeking about $US3.5 billion from the US government after approval from the Federal Reserve to become a bank holding company.